Arbeitspapier
Wage dynamics and returns to unobserved skill
Economists disagree about the factors driving the substantial increase in residual wage inequality in the U.S. over the past few decades. We identify and estimate a general model of log wage residuals that incorporates: (i) changing returns to unobserved skills, (ii) a changing distribution of unobserved skills, and (iii) changing volatility in wages due to factors unrelated to skills. Using data from the Panel Study of Income Dynamics, we estimate that the returns to unobserved skills have declined by as much as 50% since the mid-1980s despite a sizeable increase in residual inequality. Instead, the variance of skills rose over this period because of increasing variability in lifecycle skill growth. Finally, we develop an assignment model of the labor market and show that both demand and supply factors contributed to the downward trend in the returns to skills over time, with demand factors dominating for non-college men.
- Language
-
Englisch
- Bibliographic citation
-
Series: Bank of Canada Staff Working Paper ; No. 2017-61
- Classification
-
Wirtschaft
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Human Capital; Skills; Occupational Choice; Labor Productivity
Wage Level and Structure; Wage Differentials
- Subject
-
Econometric and statistical methods
Labour markets
- Event
-
Geistige Schöpfung
- (who)
-
Lochner, Lance
Park, Youngmin
Shin, Youngki
- Event
-
Veröffentlichung
- (who)
-
Bank of Canada
- (where)
-
Ottawa
- (when)
-
2017
- DOI
-
doi:10.34989/swp-2017-61
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Lochner, Lance
- Park, Youngmin
- Shin, Youngki
- Bank of Canada
Time of origin
- 2017
Other Objects (12)
Wage dynamics and returns to unobserved skill
State correlation and forecasting: A Bayesian approach using unobserved components models
Extreme downside risk in asset returns
Identifying asymmetric comovements of international stock market returns
Uncovered return parity: Equity returns and currency returns
Downward nominal wage rigidity in Canada: Evidence against a "greasing effect"
Heterogeneous returns to U.S. college selectivity and the value of graduate degree attainment
Earnings dynamics and intergenerational transmission of skill
Liquidity, risk, and return: Specifying an objective function for the management of foreign reserves
Expansion of higher education, employment and wages: Evidence from the Russian transition
Identification and estimation of risk aversion in first-price auctions with unobserved auction heterogeneity
Cyclicality of schooling: New evidence from unobserved components models
Wage dynamics and returns to unobserved skill
State correlation and forecasting: A Bayesian approach using unobserved components models
Extreme downside risk in asset returns
Identifying asymmetric comovements of international stock market returns
Uncovered return parity: Equity returns and currency returns
Downward nominal wage rigidity in Canada: Evidence against a "greasing effect"
Heterogeneous returns to U.S. college selectivity and the value of graduate degree attainment
Earnings dynamics and intergenerational transmission of skill
Liquidity, risk, and return: Specifying an objective function for the management of foreign reserves
Expansion of higher education, employment and wages: Evidence from the Russian transition
Identification and estimation of risk aversion in first-price auctions with unobserved auction heterogeneity
Cyclicality of schooling: New evidence from unobserved components models
Wage dynamics and returns to unobserved skill
State correlation and forecasting: A Bayesian approach using unobserved components models
Extreme downside risk in asset returns
Identifying asymmetric comovements of international stock market returns
Uncovered return parity: Equity returns and currency returns
Downward nominal wage rigidity in Canada: Evidence against a "greasing effect"
Heterogeneous returns to U.S. college selectivity and the value of graduate degree attainment
Earnings dynamics and intergenerational transmission of skill
Liquidity, risk, and return: Specifying an objective function for the management of foreign reserves
Expansion of higher education, employment and wages: Evidence from the Russian transition
Identification and estimation of risk aversion in first-price auctions with unobserved auction heterogeneity